WellCare Health Plans Inc.'s pending acquisition of Meridian Health Plan of Illinois Inc. and Meridian Health Plan of Michigan Inc. stands to bolster the company's position in what is expected to be the fastest-growing market within the managed care space over the next several years.
As baby boomers continue to age, spending on Medicare and Medicaid is forecast to outpace private health insurance, according to projections by the Center for Medicare and Medicaid Services. Combined Medicaid and Medicare spending is expected to grow to $1.370 trillion in 2018, up 6.4% from 2017. That compares to an expected year-over-year spending increase of 4.8% for private health insurance.
On a pro forma basis, the combination of WellCare and Meridian would have recorded $17.77 billion in earned premiums in the Medicaid and Medicare lines of business for 2017. The combined company would solidify its position as the sixth-largest writer of those two government healthcare plans, and bring it close to cracking the top five.
The acquisition will increase WellCare's Medicaid membership, based on membership figures as of March 31, by 40%, according to executives who spoke on a conference call to discuss the deal. During that call, management said that, once the transaction closes, the combined company will boast the largest Medicaid enrollment in six states — half of its Medicaid markets. The combined entity's Medicare Advantage coverage area will expand to 21 states as Meridian adds Michigan, Indiana and Ohio to WellCare's existing slate.
Cantor Fitzgerald analyst Steven Halper in a research note published after the deal's announcement said WellCare seems to be "nicely positioned" in the higher-growth managed care markets of Medicaid and Medicare. He expects WellCare to consider additional acquisitions to boost its presence in those markets.
The Meridian deal is expected to close by the end of the year. The $2.5 billion price tag will make it the fourth-largest managed care deal announced since Jan. 1, 2013.

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